The issue here is not credit report because per your statement, the blemish is due to a divorce which can be documented. An professionally written LOE will suffice. The main issue is non-filing of 2009 tax. Why? Most investors will require a 4506-T to verify tax. You see, you said that the borrower has asset worth millions of dollars. What kind of assets are these? Liquid (cash on hand, bank deposits, CD, Investments, etc)? or solid assets such as land, buldings, real estate owned? Whatever the assets are, those must be reported in his personal/business income tax return filing. If he is late in 2009 filing, there must be a proof that he had filed an extension. The IRS must have already sent him a notice to this effect and perhaps your borrower and IRS have made a payment arrangement plan which document you can use.
The other issue you must resolve is to explain why you prefer to go sub-prime (Stated, light-doc or no-doc) program. It is inconsistent to what your borrower stands financially (having 2.5 million dollar assets) and credit wise 646 mid fico score. That kind of asset tells the Underwriter that the borrower has the means to go conventional. If your borrower is a self-employed, then surely there will be financial statements of 2008 that will show he has been in business for two years. The 2009 can be explained by the IRS payment arrangement plan if there is any forged by borrower and IRS. For 2010, the first two quarters can be shown in the balance sheet and Profit and Loss Statements, Again, the work of a professional CPA is vital in this case.
Stated income, stated assets, no-doc program are now obsolete. Perhaps the reason why you want to go this way, is that there is no documentation your borrower can show as to his sorce of income. If this is the real truth, then your borrower can not show his capability to pay his mortgage payments if the loan is granted. If you are planning to go this route (forgive me for saying this) you are thredding in the area of predatory lending violation practices. No lender will do that because it has been established as one of the causes of foreclosures. I will encourage you NOT to go into it.
Perhaps your best bet is to go to Credit Unions (smaller banks who have their own portfolio). Or, to the bank where your borrower has established an account. Because as an account holder or Credit Union member, your client stands a good chance. You will still be the main Real Estate Agent for him. Unless and until you can show proper income documentation to show the ability of borrwer to pay, your loan scenario is weak.
Another thing: yourDTI is only 5%. That means, he has awashed with money. His disposable income (gorss income less household expenses) is high and therefore can and will be able to afford mortgage payment. If your DTI is really that low, question will be why go into Stated, no doc sub-prime program?
Look for a good loan broker in your area to help you put your file in order.
Best regards,
Allan Romero - Rancho California Mortgage 8401 White Oak Ave. Rancho Cucamonga, CA 91730 Tel; (909) 657-2244